A firm is entitled to registration under Section 26A of the Income-tax Act only if it is constituted under an instrument of partnership, which means that the firm must be established by or under a written instrument, and not merely by an oral agreement.

A.N.Bhandari, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act. On 10-4-1948 Rattan Lal and his brother Jai Parkash entered into an oral agreement to carry on business in partnership under the name and style of Messrs. Ramji Das Rikhi Ram and on 17-10-1948 they reduced the terms of this agreement into writing. On a later date they made an application to the Income-tax Officer to register their firm under the provisions of Section 26A of the Income-tax Act for the assessment for 1949-50 (previous year ending 31-3-1949). The Income-tax Officer came to the conclusion that no genuine firm had come into existence in April 1948 and his conclusion in this behalf was confirmed by the Appellate Assistant Commissioner. The Tribunal, however, came to a contrary conclusion. It held that although a genuine firm was constituted in April 19-18, the instrument of partnership was drawn up only on 17-10-1948, and the firm cannot be said to have been "constituted under an instrument of partnership". In this view of the case the Tribunal dismissed the appeal in so far as the firms registration under Section 26A was concerned. At the request of the parties the Tribunal has referred the following question of law to this Court, namely;

"Whether the applicant firm which was formed by oral agreement in April, 1948 on terms and conditions reduced to writing in October 1948 was one constituted under an instrument of partnership within the meaning of those words in Section 26A and entitled to registration for the purposes of the Income-tax Act for the assessment year 1949-50?"

2. Although it is difficult to give a definition of partnership which is accurate, comprehensive and exclusive, a partnership may be stated broadly to be a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The Indian Income-tax Act does not take notice of any partnerships which come into existence as the result of an oral agreement, for Section 26A provides quite clearly that application can be made only on behalf of any firm "constituted under an instrument of partnership". One of the chief characteristics of the partnership relation is that it is created only by the voluntary agreement of the parties. The agreement may be oral or in writing or it may be express or implied, but an agreement must precede the creation of the relationship. The element of agreement is fundamental. The Income-tax Act does not take notice of any partnerships which come into existence as the result of an oral agreement; it recognises only partnerships which are constituted under an instrument of partnership. If therefore any person wish in like advantage of the lower rates of assessment applicable to partnerships, they must constitute the firm under an instrument of partnership. This is clear from the language which the Legislature has chosen to cm-ploy, for Section 26A of the Income-tax Art provides :

"26-A (1) Application may be made the Income-Sax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax."

The expression "constituted under an instrument of partnership" has come up for judicial interpretation in certain eases in this country. Two different sets of views have been expressed. According to one view S.26A does not require that the firm for the registration of which the application is made, must be constituted by the instrument of partnership, or that it must come into existence by reason of the instrument of partnership, or that the firm should be the creature of the partnership, or that the firm must not exist prior to the execution of the instrument of partnership. It provides merely that it should be constituted under an instrument of partnership. The expression "under" is